PLR 200031051: Parent receives 60 more days to elect QSub treatment

Plain-English summary

A parent corporation formed a wholly owned subsidiary and intended to elect qualified subchapter S subsidiary (QSub) treatment from its formation date. The people responsible for its tax filings missed the election deadline. The IRS gave the parent 60 days from the ruling date to file the election under Notice 97-4, effective as of the subsidiary's formation date. The letter says the requirements for discretionary filing relief were met. It expressly leaves open whether the parent is a valid S corporation and whether the subsidiary qualifies as a QSub.

Ruling snapshot

• Question: May the parent file a late QSub election for its subsidiary, effective from the date it was formed?
• Outcome: Approved. The parent has 60 days from the letter date to make the election, following Notice 97-4 and attaching the ruling.
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. §§ 301.9100-1, 301.9100-3; Notice 97-4.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 9100.00-00, Washington, DC 20224
1361.05-00
Number: 200031051
Person to Contact:
Release Date: 8/4/2000
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-104744-00
Date:
May 10, 2000

Legend

X =

W =

Date 1 =

This letter responds to your letter written on behalf of X, requesting a ruling that X be granted an extension of time in which to elect to treat its subsidiary W as a qualified subchapter S subsidiary (QSub).

FACTS

On Date 1 X incorporated W, a wholly owned subsidiary. From its inception X intended to have W treated as a QSub. Due to an oversight by the individuals responsible for X’s tax filings X did not timely file a QSub election for W.

LAW AND ANALYSIS

Section 1361(b)(3)(B) defines the term “qualified subchapter S subsidiary” as a domestic corporation which is not an ineligible corporation as defined in section 1361(b)(2), if (1) an S corporation holds 100 percent of the stock of the corporation, and (2) that S corporation elects to treat the subsidiary as a QSub. The statutory provision, however, does not provide guidance on the manner in which the QSub election is made 2
PLR-104744-00

or the effective date of the election.

On January 13, 1997, the Service published Notice 97-4, 1997-1 C.B. 351, providing a temporary procedure for making a QSub election. Under Notice 97-4, a taxpayer makes a QSub election with respect to a subsidiary by filing a Form 966, subject to certain modifications, with the appropriate service center. The election may be effective on the date the Form 966 is filed or up to 75 days prior to the filing of the form, provided that the date is not before the parent’s first taxable year beginning after December 31, 1996, and that the subsidiary otherwise qualifies as a QSub for the entire period for which the retroactive election is to be effective.

Under section 301.9100-1(c) of the Procedure and Administration Regulations, the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H and I, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting the relief will not prejudice the interests of the government. Section 301.9100-1(b) defines the term “regulatory election” as including an election whose deadline is prescribed by a notice published in the Internal Revenue Bulletin.

Sections 301.9100-2 and 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 310.9100-2 provides automatic extensions of time for making certain elections, but does not apply to QSub elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of section 301.9100-2. Requests for relief under section 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

CONCLUSIONS

In the present situation, the requirements of sections 301.9100-1 and 301.9100- 3 have been satisfied. As a result, X is granted an extension of time of sixty (60) days from the date of this letter to make an election to treat W as a QSub effective Date 1. The taxpayer should make the election by following the procedure set forth in Notice 97-4 and attaching a copy of this letter to the election. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is a valid S corporation or whether its subsidiary W is a valid QSub for federal tax purposes.
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This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office a copy of this letter is being sent to the first and second listed authorized representatives.

Sincerely yours,
Signed/Paul F. Kugler

Paul F. Kugler
Assistant Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for section 6110 purposes